Nation all set to cut carbon emissions

For historical reasons, the government regulates China's energy prices by applying cost-plus pricing principles. The public is accustomed to relatively low energy prices and consequently is sensitive to any price increase. Energy pricing reforms are subject to affordability and people's willingness to pay, and have been slow.

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Cost-sharing has become a major issue in the cleaning-up process and is expected to affect not only the process itself but also its pace. Given China's current levels of air pollution, the public is likely to be willing to contribute more to clean-up costs.

This, together with better energy supply, is good for energy pricing reforms, and the government is exploring this opportunity. China carried out natural gas pricing reforms last year, and coal resource tax reform and electricity tariff reforms are in the offing this year.

Coal substitution requirements and energy pricing reforms will together favor development of renewable energy and clean energy. China's renewable energy sources have grown rapidly in recent years. Last year, electricity capacity was 1,247 gigawatts, while wind and solar power rose 16 gW and 11 gW, respectively, increasing the proportion of non-fossil fuel generation capacity to 31 percent, with large hydro generation at 15 percent.

Thanks to energy pricing reforms, competitiveness of renewable energy in China could be improved by increasing the cost of fossil fuels. China aims for 18 gW of wind power and 14 gW of solar power this year, and is promoting distributional energy. Nuclear power meets both cost and clean criteria, and more nuclear power plants are on their way.

The Energy Information Administration estimated that in 2011, China's shale gas reserves were the largest in the world, at 14.3 percent of the total. Shale gas development has been slow, with output of 200 million cubic meters last year.

The success of US shale gas is of much interest to China. If China could produce shale gas equivalent to last year's US output, China could substitute close to 10 percent of coal's primary energy share at present consumption levels. But shale gas production in China would have to increase significantly for this to be possible.

Energy pricing reforms will be particularly good for energy conservation and CO2 emission reduction. The government has initiated energy conservation and emission reduction targets since 2006, but these have been vague to the public. However, efforts to clean up the air will encourage governments at all levels to set more direct and measurable targets.

Meanwhile, clean-up efforts have introduced more specific energy conservation measures. For the central government, these will include targets for total energy control and reducing emissions of major pollutants. For local governments, many emission reduction measures have also been set out.

For example, the Tianjin government announced that it would no longer approve new capacity expansion projects in energy-intensive industries such as steel, cement and non-ferrous metals.

The air pollution clean-up will require technological progress and management models, and will provide great opportunities to domestic and foreign companies alike in environmental technologies and management. In particular, management of energy efficiency projects will benefit.

China is also promoting electric vehicles and efficient buildings. Recent policies have specifically supported electric vehicles, including administrative measures to force government agencies to procure electric vehicles, and housing developers to build electricity-charging facilities; and additional subsidies (tax exemption) for buying electric vehicles. The government is expected to come up with stricter policies for building efficiency, possibly in connection with distributional energy.

The author is director of the China Center for Energy Economics Research at Xiamen University. The views do not necessarily reflect those of China Daily.

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